Daishi Hokuetsu Financial Group, Inc.

There is a risk that non-performing loans and credit-related expenses may increase due to fluctuations in economic conditions, land prices, and stock prices, or deterioration in the financial condition of borrowers. Unforeseen external factors such as major earthquakes may also adversely affect borrowers' business performance. Although the Group is strengthening its screening system, conducting rigorous self-assessment, and diversifying large borrower exposures into smaller amounts, if additional provisions for loan losses become necessary, this could have a material adverse effect on business performance and financial condition.

If unexpected interest rate fluctuations occur due to changes in monetary policy or other factors, the interest margin between funding costs and investment yields may fluctuate, potentially having a negative impact on earnings. In addition, bonds held such as Japanese government bonds and municipal bonds may decline in market value due to rising interest rates, which could adversely affect business performance. The Group calculates VaR (99% confidence interval) on a daily basis and manages risk exposure within the scope of its capital through a capital allocation system.

With respect to marketable equity securities held, if a significant decline in stock prices occurs due to economic and market trends or deterioration in the business performance of issuers, impairment or valuation losses may occur, adversely affecting business performance. In addition, if foreign currency-denominated assets and liabilities are not appropriately hedged, a stronger yen could reduce their yen-equivalent value, adversely affecting business performance. These risks are also managed through daily VaR monitoring and the capital allocation system.

Uncertainty in the global economy is increasing due to continued tensions in the Middle East, geopolitical conflicts and trade policy changes among major countries, inflation, a slowdown in overseas economies, and fluctuations in resource prices. If such external factors lead to deterioration in corporate earnings or instability in financial markets, this could adversely affect business performance and financial condition through increased credit-related expenses and valuation losses or impairment of held assets.

The Company and The Gunma Bank, Ltd. plan to conduct a business integration through a share exchange in April 2027, and following the integration, the company name is planned to be changed to Gunma Niigata Financial Group, Inc. If unforeseen losses or expenses arise during the integration process, this could affect the Group's business performance, financial condition, and stock price.

Cyberattacks such as unauthorized intrusion, information theft, tampering, destruction, and DDoS attacks could threaten the Group's systems and information, potentially resulting in losses. While the Group recognizes cybersecurity risk as a risk to be managed across the entire Group and is working to strengthen its management framework, responding to increasingly sophisticated cyberattacks could adversely affect business performance.

The Group is required to maintain a consolidated capital adequacy ratio in accordance with domestic standards (4% or higher), and there is a risk that the ratio may decline due to a decrease in the value of the securities portfolio, an increase in credit-related expenses, or changes in calculation standards. If the ratio falls below the required standard, the Company may be subject to various orders from the Commissioner of the Financial Services Agency, including suspension of all or part of its business operations.

As the Group's primary business base is Niigata Prefecture, a downturn or deterioration in the regional economy could constrain business expansion, and could also lead to increased credit risk through deterioration in the business conditions of client companies. The Group faces a structural risk in that its business performance is heavily influenced by regional economic trends, which could adversely affect its business performance and financial condition.

If economic losses or a decline in creditworthiness occur due to violations of laws and regulations by officers or employees, or if differences in legal interpretation, procedural deficiencies, or violations of laws and regulations occur, this could adversely affect business operations, performance, and stock price. While the Group positions thorough compliance as a top management priority and is working to strengthen its compliance framework, future changes in regulations and systems also pose a risk of adversely affecting business operations.

If leakage, loss, tampering, or unauthorized use of customer information or management information occurs due to human error or accidents by officers, employees, or outsourcing partners, this could adversely affect business operations and performance. Similar risks also exist if outsourced operations are disrupted due to the bankruptcy or other issues of an outsourcing partner. The Group is developing and strengthening its information management framework in response to the Personal Information Protection Act and other regulations, and conducts monitoring management of outsourcing partners.